1987 (12) TMI 68 - AT - Income Tax

Issues Involved:
1. Accrued Labour Liability
2. Disallowance under Section 40(c)
3. Disallowance of Entertainment Expenses under Section 37(2A)
4. Disallowance of Death Anniversary Expenditure
5. Disallowance of Filing Fees for Increasing Authorized Capital
6. Disallowance of Club Membership Fees
7. Disallowance of Expenses on Mr. T. A. Pai and Market Survey
8. Disallowance of Travelling Expenses
9. Disallowance of Weighted Deduction for Travelling and Legal Fees
10. Disallowance of Expenditure on Maintenance of Accommodation
11. Disallowance of Pooja Expenditure
12. Levy of Interest under Sections 139(8), 215, and 217

Detailed Analysis:

1. Accrued Labour Liability:
The primary issue was whether the CIT (Appeals) erred in holding that there was no accrued labour liability in the year under appeal and that the claim of Rs. 2,20,87,000 was legally inadmissible. The Tribunal noted that the appellant had not made any provision for back wages in its books from 1974 to 1979. The realization of liability was claimed to have arisen from a solicitor's letter dated 22-12-1980, which referenced the Supreme Court decision in Gujarat Steel Tubes Ltd. v. Gujarat Steel Tubes Mazdoor Sabha. The Tribunal found that the liability did not arise in the accounting year 1980, as no significant event related to the dispute occurred during that year. The Tribunal also noted that the amount was treated as a reserve in subsequent years, indicating it was not intended as a provision for liability. The Tribunal upheld the CIT (Appeals) decision, rejecting the claim of Rs. 2,20,87,000 as accrued labour liability.

2. Disallowance under Section 40(c):
The appellant contested the disallowance of Rs. 2,62,097 under Section 40(c) of the Act. The Tribunal referred to the Special Bench decision in Mettur Chemical & Industrial Corpn. Ltd. v. ITO, which held that commission payments should not be excluded from the scope of Section 40(c). The Tribunal confirmed the disallowance, rejecting the appellant's argument.

3. Disallowance of Entertainment Expenses under Section 37(2A):
The appellant argued that the entertainment expenses were incurred out of commercial expediency and should be proportionately excluded for staff expenses. The Tribunal found no basis for this argument and confirmed the CIT (Appeals) order, disallowing the expenses.

4. Disallowance of Death Anniversary Expenditure:
The Tribunal found that the expenditure of Rs. 19,295 incurred on the death anniversary of the Chairman was not related to the business and was in the nature of charity or donation. The disallowance was upheld.

5. Disallowance of Filing Fees for Increasing Authorized Capital:
The Tribunal confirmed the disallowance of Rs. 13,500 paid as filing fees to the Registrar of Companies for increasing the authorized capital, citing the Bombay High Court decision in Bombay Burmah Trading Corpn. Ltd. v. CIT.

6. Disallowance of Club Membership Fees:
The Tribunal allowed the expenditure of Rs. 3,339 for club membership fees, considering it necessary for maintaining business contacts by directors and senior executives.

7. Disallowance of Expenses on Mr. T. A. Pai and Market Survey:
The Tribunal agreed with the CIT (Appeals) that the IAC had been reasonable in allowing 25% of the expenses incurred by Mr. T. A. Pai and disallowing the remaining 75% as capital expenditure. The expenditure of Rs. 53,000 on market research survey was also disallowed as it was not related to the business of the year.

8. Disallowance of Travelling Expenses:
This ground was not pressed and was dismissed.

9. Disallowance of Weighted Deduction for Travelling and Legal Fees:
The Tribunal confirmed the CIT (Appeals) decision that no relief under Section 35B was available, as the expenditure on T. A. Pai and Furfurol Project was not of a revenue nature related to the business.

10. Disallowance of Expenditure on Maintenance of Accommodation:
The Tribunal referred to Section 37(5) and confirmed the CIT (Appeals) order, disallowing the expenditure on maintaining accommodation at Rajkot, as it was considered a guest house.

11. Disallowance of Pooja Expenditure:
The Tribunal allowed the expenditure of Rs. 16,645 incurred for pooja in the factory, considering it as normal business expenditure.

12. Levy of Interest under Sections 139(8), 215, and 217:
The Tribunal confirmed the CIT (Appeals) finding that the levy of interest was not appealable, referencing the Supreme Court decision in Central Provinces Manganese Ore Co. Ltd. v. CIT.

Conclusion:
The appeal for the assessment year 1981-82 was allowed in part, while the appeals for the assessment years 1978-79 and 1979-80 were dismissed for non-prosecution.

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